Monday, January 21, 2008

More color on last Tuesday's Apple news

I did some post-MacWorld analysis for Variety, focusing mostly on the addition of movie rentals to iTunes. (Diane Garrett also wrote this piece a few days later.)

The big things that could hamstring Apple's move into rentals: the breadth of its selection, and the fact that rentals won't show up there until about a month after the DVD release. Both those limitations, in my mind, still favor Netflix.

Let me share some interesting studio exec comments that didn't make it into my piece...

- Jim Gianopoulos, chairman of 20th Century Fox, told me that his studio had eventually gotten comfortable with Apple's DRM system, Fairplay: "Nothing's perfect, but they've worked hard. The better the content protection, the easier content flows... and the more comfortable content providers are about handing over their titles." He said that digital revenues simply won't grow in the presence of rampant piracy: "None of this works if there's a parallel flow of freely-available content."

Gianopoulos also said he didn't think that digital rentals from Apple and others would necessarily undermine bricks-and-mortar rental chains, or services like Netflix. "People make choices, and they make choices that are most convenient to them. We're in all of those businesses, and we want to support all of them. It's up to those providers to provide good value."

- Thomas Lesinski, president of Paramount Pictures Digital Entertainment, told me that last week's announcement from iTunes "will be the beginning of a significant digital media business." He added that Apple "learned a lot from the original Apple TV, and changes in the 2.0 version will get a lot of people interested in digital distribution in the home. It's a very easy-to-use product, and they lowered the price."

3 Comments:

While I think Netflix unlimited streaming announcement is very consumer friendly, it's hard for me to think it's a sustainable proposition long term.

While perhaps they have been able to negotiate special terms, normally Studios are compensated on a per viewing/download.

This - to me - means that Netflix's margins with the Subscription price will be under attack from unlimited - or worse - arbitrary viewing. With an "all you can eat" type model, end-users just may watch 10 minutes of a film, then stop. However, I'd imagine the Netflix would still have to pay the fee to the content owners. Depending on how end-users consume this proposition, I think it could hit Netflix bottom line pretty hard.

With iTunes, the margin is built into the pay-as-you-go transaction. While this is not as consumer friendly, it's sustainable.

That said, I'm a bit disappointed on the price point. I would have hoped for $1.99-$2.99 rentals. Hopefully, there will be some adjustments.

Regards the comment above, NetFlix negotiates with the content provider a fixed fee for unlimited downloads for a period of years. Hence NetFlix has an "all you can eat" deal with the producer - so they don't get burned either end. I actually think that what is effectively a one-off minimum guarentee from Netflix to the producer is attractive for many indies.Where iTunes has the edge over many is in reach and end-user kit like AppleTV as mentioned by the exec in Scott's blog. For filmmakers, the big pain with iTunes is having to go via a middleman and hence another hungry mouth eats into the producer's revenue stream. I like the online models where producers upload their own film and share revenue only with the retailer (Apple/Netflix) not the middlemen (distributor).

About

CinemaTech focuses on how new technologies are changing cinema - the way movies get made, discovered, marketed, distributed, shown, and seen. (With occasional forays into other parts of the entertainment economy.) You can also follow CinemaTech on Twitter (@ctechblog).

About Me

For about the last ten years, I've been writing about innovation for publications like the Boston Globe, the New York Times, Wired, Variety, Fast Company, the Hollywood Reporter, Salon.com, BusinessWeek, and Newsweek.
I helped start (and continue to help run) three conferences: Future Forward, the Nantucket Conference on Entrepreneurship & Innovation, and Convergence: The Life Sciences Leaders Forum. I also often speak and moderate at other people's conferences, and serve as a commentator on TV and radio. (Which beats actual work.)
You can reach me by e-mailing kirsner - at- pobox.com. My personal site is www.scottkirsner.com.